Rising fossil fuel prices boost prospects for renewable energy

SAN FRANCISCO – With oil reaching a record-high $54 a barrel and natural gas doubling in price in the last two years, renewable energy is looking a lot better – not just on environmental merits but on price.

Wind, solar, geothermal and other green power sources have long been championed by people worried about smog and global warming, but until recently they were too costly to compete.

But the soaring cost of fossil fuels is changing the economics of the energy market.

"Rising fossil fuel prices are making renewable energy more competitive in the power market," said Steve Taub, an alternative energy analyst at Cambridge Energy Research Associates.

Renewable energy can't offer much relief to drivers and companies seeing their profits evaporate because of skyrocketing oil prices, because viable green alternatives to gasoline are hard to find. Biofuels such as ethanol and biodiesel aren't widely available, and hydrogen-powered cars aren't expected to hit the market for years.

But in the electricity market, green power, especially wind, is already competing with traditional sources. At today's average wholesale prices, wind costs 4.2 cents per kilowatt hour, compared with 4 cents for coal, 6.8 cents for natural gas, 9.1 cents for oil and 10 cents for nuclear power, according to Kyle Datta, managing director at the Rocky Mountain Institute, a research group focused on eco-friendly business.

Experts estimate that at today's consumption rates, known global supplies of oil and natural gas would be depleted within decades. But prices are expected to rise significantly long before supplies run out, making those fuels too expensive to use at current levels.

"They're never going to run out, but the ability to match supply to demand may already have run out, especially for oil," said Stephen Leeb, president of Leeb Capital Management and co-author of "The Oil Factor," which predicts that oil could hit $100 a barrel by 2010.

In the short term, fossil fuel prices are being driven up by war, political instability, natural disasters and other variables. The long-term outlook is clearer – global supplies are dwindling as demand soars, particularly in China and India, where automobiles are multiplying and economies are growing a breakneck speed.

"We should treat the prices as a warning that we need to act to promote energy efficiency and renewable energy," said Ralph Cavanagh, an energy expert at the Natural Resources Defense Council. "They represent a terrible threat to the vitality of the United States."

Sixteen states, including California, New York and Texas, have adopted "renewable portfolio standards" that require utilities to buy a certain share of their electricity from renewable sources.

Utilities such as Pacific Gas & Electric Co., which serves most of northern California, are increasing purchases of renewables, not only to meet state mandates but also to diversify their energy portfolios. Spokesman Jon Tremayne said renewables make up 13 percent of PG&E's portfolio, and the utility plans to increase that share by 1 percentage point annually until it reaches the 20 percent required by California law.

Less than 3 percent of U.S. electricity now comes from renewables such as wind, solar, geothermal, wood and waste, but that share is expected to increase as the price of fossil fuel rises.

About 50 percent of electricity comes from coal, 20 percent from nuclear power, 17 percent from natural gas, 7 percent from hydroelectric and 3 percent from oil, according to the U.S. Energy Information Administration.

Increasingly, solar power is gaining popularity with individual homeowners and businesses that want to generate their own power, but it isn't used much by utilities. Geothermal energy is limited by geography, and biomass is still being developed as a reliable fuel source.

Wind, which makes up less than 1 percent of the nation's energy supply, is the fastest growing source of renewable power. Over the past five years, large scale wind farms have been built in Texas, California, Kansas, Wyoming and other states.

Advocates point to wind's numerous advantages: Wind is free and inexhaustible, it doesn't generate smog or greenhouse gas, and its price is more stable than its chief competitor, natural gas. The downside is that the wind doesn't always blow, and not all regions have strong wind resources.

"Wind energy is a good investment because it can insulate utilities and consumers from volatility in the price of fuels," said Christine Real de Azua, spokeswoman for the American Wind Energy Association.

The Energy Information Administration has calculated the average price – factoring in fuel, construction and operating costs – of various electricity sources over 20 years starting in 2010. It estimates that wind would cost $50.54 per megawatt hour, compared with $61.32 for nuclear power, $53.42 for coal and $49.66 for natural gas.

"What's lost in the discussion of clean and dirty energies is that the clean energy might actually be cheaper," Leeb said. "Being clean is a bonus."

For now, advocates are pleased that pocketbook concerns are generating renewed interest in green power.

"It brings attention to the need to diversify America's energy portfolio," said George Douglas, spokesman for the National Renewable Energy Laboratory in Golden, Colo. "It raises people's awareness of the cost of energy and where energy comes from."

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